Ireland’s lower tax rate effectively allows MNEs to develop egregious tax-sheltering methods to shift more of their total EU profits to Ireland.
Digital Revolution of the Economy
Digitization of the economy continues to create challenges for global taxation. EU’s thrust on digital tax is on encouraging corporations to build trust and commitment for social cohesion and environmental protection.
EU proposed to adopt the Digital Services Tax to protect the taxes of the Member. This short-term measure to resolve tax challenges for the digital economy provides a window of opportunity to build consensus while the longer-term tax approach is being sorted out.
International Tax Reforms
Nearly 130 countries agreed to an agreement aimed at improving international tax rules that have been surpassed by the growth of digital commerce. European Commission’s plans have faced very public scrutiny from leading international figures. Many countries Many countries see a value creation mismatch for taxation of digital activities. A growing number of countries are considering implementation of digital services tax.
Silicon Valley gets Digital Tax Jolt
Traditional sectors are paying on average 23% tax in the EU. To avoid higher tax burdens, global tech giants such as Facebook, Google, Amazon, Apple and other large technology firms set up their headquarters in low-tax countries such as Ireland or Luxemburg to preserve more of their EU profits. They pay only 8% or 9% in the EU and book profits.
Status Quo in Ireland’s Corporation Tax Regime
Ireland blocked EU’s relentless push to end the veto power member states have over EU tax matters. The new rules will come into force next year would make it harder for large multinational firms with high international tax burdens. This would also make it more difficult for tax havens such as Ireland to attract foreign direct investment.
Closing the Loop
Although Ireland holds a veto in tax matters, it cannot turn a blind eye to tax reforms particularly as some of this revenue is escaping the tax net entirely. The digital tax is a levy on revenue rather on profits, which is perceived by big players as being selectively discriminatory.
Ireland is Bracing for the New Tax Regime
Ireland has expressed strong reservations over the plans by the European Commission to tax digital companies. As the OECD puts forward with global collaboration high on its agenda, Ireland is pulling out all stops to protect its peripherality and moving towards greater transparency and sustainable development.